Seven Things You Need When You are Personal Representative of an Estate

Seven Things You Need When You are Personal Representative of an Estate

Being asked to wind up the affairs of a deceased loved one may feel like an honor, but the duties of a Personal Representative, or Executor, as the position is sometimes called, can also be complicated. If you have been named as Personal Representative in the Last Will & Testament of someone who has died, here are some things to keep in mind:

1. You Will Need Patience.
Being appointed takes time. Your nomination as Personal Representative does not give you authority to act on behalf of the estate. Before you can act, you will need to file an application with the probate court to request that you be appointed. You will be required to file a number of documents to open the administration, and will be appointed only after all interested parties, heirs, and beneficiaries have been given notice of the proceedings and any applicable waiting periods have passed. The process and time frame varies depending upon the number of heirs and beneficiaries, and whether any party raises an objection to the Will or to your appointment as Personal Representative. In the meantime, you will not have authority to pay bills, secure property, or handle administrative tasks for the estate.

2. You Will Need Help.
You will often need the assistance of an attorney to prepare the initial required filings and help you through the remaining probate process. The required legal filings can be complicated. In addition, you will need legal advice regarding claims filed against the estate, tax issues, distribution methods, or objections by beneficiaries. Your attorney can coach you through legal questions and situations as they arise. He or she can also conduct research on specific matters and look over or prepare paperwork before filing.

3. You Will Need Information.
Before initiating the probate process, you will need information about the decedent’s assets and the original Last Will & Testament. Not all estates are subject to probate. If the deceased named direct beneficiaries on his or her life insurance, bank accounts or retirement accounts, for example, these assets will not need to go through the probate process. How assets are titled matters in determining what procedures will be necessary to handle the decedent’s affairs. If you don’t have very much information regarding assets and expenses, an attorney will not be able to tell you which procedures can be used until you gather more information. It may be necessary to sort through files and go through all of the decedent’s paperwork before you can begin the process.

4. You Will Need Time.
Administering an estate is very time consuming. It will take several months to administer a basic estate, and much longer for complicated estates. In Wisconsin, there is a three month period after the estate has been opened, during which creditors may file claims in the estate. In addition, the estate will need to remain open until all assets, including real estate, are liquidated and transferred. This may mean waiting several months to a year or more for real estate to be sold. Being a Personal Representative can feel like a “second job” as you spend time making phone calls to obtain information from banks, mortgage servicers, investment firms, and life insurance companies and schedule meetings with financial advisors, realtors, accountants, and attorneys. You may need to sort through and dispose of years of accumulated paperwork and personal property, often while dealing with other grieving family members who also have an interest in personal property and sentimental items.

5. You Will Need Excellent Skills.
You must have good organizational and financial skills. Personal Representatives are required to keep very good records and provide an accounting to the probate court for all expenditures. You will need to keep meticulous records of financial transactions, as well as communications with attorneys, accountants, bankers, and other contacts. If you hate the thought of balancing your own checkbook, and happily relinquish financial tasks in your household to your spouse or partner, you will have difficulty dealing with the tasks of a Personal Representative. In that case, a good Personal Representative will enlist the help of professionals to organize the estate’s finances.

6. You Will Need Money.
As Personal Representative, you will likely incur expenses during the administration of an estate, such as travel, mileage, postage, etc. Fortunately, you are entitled to be compensated for out-of-pocket costs. You are also entitled to compensation in the form of a Personal Representative’s fee, typically 2% of the value of the estate. Be prepared, however, that heirs do not always understand the amount of time involved in administering an estate, and the Personal Representative’s fee may become a source of conflict. While the law allows the fee, many Personal Representatives feel uncomfortable accepting payment.

7. You Will Need to Fulfill Legal Duties.
Personal Representatives have a duty under the law to properly administer the estate. Personal Representatives are required to complete certain duties, such as paying administration and funeral expenses, publishing notices to creditors, filing tax returns, providing notice to heirs, and following the distribution instructions as set forth in the decedent’s Will. The law also provides a time frame in which these tasks must be completed. In addition, you have a legal duty to properly value assets and make sure that heirs receive the inheritance to which they are entitled.

The role of Personal Representative of an estate requires time, patience, and the organizational skills to deal with a somewhat overwhelming amount of legal and financial documents. With this information, we hope that you are more prepared to handle the responsibility of being Personal Representative. Please note that Anderson O’Brien Law can assist you in the process of administering an estate.

 

Long-Term Care and Insurance Considerations

Long-Term Care and Insurance Considerations

Clients often seek the advice of an elder law attorney regarding the best protection for their assets in the event they need long-term care in a nursing home or assisted living facility. Since Medicare does not pay for long-term custodial care, having enough to pay for several months to several years of care in a facility is a serious concern for many seniors.

If you have minimal assets, you may qualify for Wisconsin’s Medicaid program to pay for care. But what if your assets exceed the limits for Medicaid qualification? Should you purchase long-term care insurance, or a combination of life insurance and long-term care insurance (called “hybrid” policies)? Factors to consider when choosing between the two include your current health status, available financial resources and your risk tolerance.

With traditional long-term care insurance, you will pay a monthly (or sometimes annual) premium. If you end up needing long-term care, the policy pays out a daily or monthly benefit, up to a lifetime maximum. If you never need long-term care, you end up with no return on the premiums you have paid. While this is the nature of many types of insurance (auto, home, term life), some find the “use-it-or-lose-it” strategy difficult to swallow.

As an alternative, some individuals will purchase so-called hybrid policies. These are policies that combine long-term care insurance with permanent life insurance policies that include a savings/investment component that builds over time. If you end up needing long-term care, you withdraw funds from the policy as they are needed, and the insurance company continues to pay for your care when those funds run out. If you never need long-term care, the funds are still available during your lifetime, and if you die without having expended the funds, your heirs receive the funds upon your death.

Typically, it is easier to qualify for hybrid type coverage because traditional long-term care insurance has stricter underwriting requirements and, therefore, the status of your health will be a consideration in which type of product to invest. Affordability may also be a factor. Hybrid policies are paid over a much shorter period of time, so you will not be able to stretch payments out as long as you would with traditional long-term care insurance, which means you will need to consider available resources. Individuals with more substantial resources may wish to look at alternative investments.

You should also inquire as to whether the payments you will be making are tax deductible. Payments for some hybrid products may not be deductible. Finally, be sure to consult with your attorney, accountant, and financial advisor as to the legal, financial, and tax consequences of your purchase before you make your final decision.

 

Special Needs Estate Planning

Special Needs Estate Planning

Special needs planning involves parents or caregivers who are interested in ensuring quality of life, advocacy and services to a child or individual with special needs. The planning itself is two-fold: First, parents and caregivers will want to be sure that they can use their own assets to provide resources and services and to ensure that such resources are appropriately handled after death. Second, for individuals with special needs, inheritances, like other resources, can have an adverse impact on needs-based or financially-based public benefits. Therefore, special needs planning also incorporates planning for those types of benefits as well.

A properly drafted special needs plan has two primary goals: (1) preservation of resources and (2) ensuring quality of life. The foundation of such planning includes a Will or Revocable Trust, a Special Needs Trust, and in some cases, Guardianship.

If you do not have a Will, Wisconsin Statutes will determine the beneficiaries who receive your property (the Laws of Intestacy). If you have a child with special needs who is receiving public benefits, you may not want that child to receive your property directly. Instead, you can set up a Special Needs Trust in your Will for your child with special needs ensuring that public benefits will remain intact after your death. If you have been court appointed as legal guardian for your adult child, you can also nominate a successor guardian in your Will.

As an alternative to your Will, you can execute a Revocable Trust, which is a trust that provides for distribution of your assets upon death. Unlike a Will, if the Revocable Trust is properly funded, it will allow you to avoid probate procedures. You can also provide for the distribution of assets to a Special Needs Trust within your Revocable Trust.

A Special Needs Trust is a trust arrangement whereby income and assets are preserved and used for the beneficiary without interfering with or jeopardizing the beneficiary’s eligibility for Medicaid, SSI, and other needs-based government benefits. Assets are held and managed by a Trustee, who distributes the assets in accordance with the instructions in the Trust document.

A Special Needs Trust created under a Will or Revocable Trust is called a third-party trust. A third-party trust is one created and funded with assets owned by someone other than the beneficiary. A third-party trust can also be created and funded prior to death and is called a living trust, or inter vivos trust. Under 42 USC 1396p (d)(4)(A), third-party trusts are not subject to a Medicaid lien.

All Special Needs Trusts provide that funds held in the trust are not to be placed under the control of the beneficiary, and most provide specifically that disbursements from the trust are not to be made to the beneficiary but are to be in the form of payments to vendors. The Special Needs Trust must also be irrevocable. The trust also provides what is to be done with any funds remaining after the death of the beneficiary. Unlike Special Needs Trusts established with a disabled individual’s assets (self-settled trusts), a third-party trust contains no requirement to pay back benefits paid to the beneficiary during his or her lifetime. It is important not to commingle the assets of a third-party trust with a self-settled trust because of this distinction.

Special Needs Trusts involve complex estate planning concepts. It is important that you work with someone who is familiar with different types of Special Needs Trusts, the various options for establishing such trusts, and public benefits planning to ensure that your assets are properly managed and that your loved one maintains necessary benefits following your death.

Beneficiary Designations

Clients often ask questions about the use of beneficiary designations in their estate planning. Beneficiary designations can be a convenient way to avoid probate in some situations. If an individual is named as a direct beneficiary on an asset, that asset passes automatically to that individual, regardless of the terms of the decedent’s Will, Trust, or other estate planning documents.

Your attorney will often recommend that you coordinate your Payable-on-Death (POD) beneficiary designations or Transfer-on-Death (TOD) beneficiary designations to follow the distribution patterns in your overall estate plan for the purpose of avoiding probate. Despite the convenience, however, there are several good reasons to consider alternatives to direct beneficiary designations.

1. When you name direct beneficiaries using TOD and POD beneficiary designations to transfer all of your assets directly to those named beneficiaries, there is no one in charge of settling your estate. Furthermore, naming direct beneficiaries means there is no funding mechanism so that the person in charge can pay for funeral and burial, medical bills, debts, and administration expenses.

2. If you have relied on TOD and POD beneficiary designations to transfer all of your assets on death, there is no legal method for handling the disposition of tangible personal property, such as household furniture and furnishings, personal effects of sentimental value, motor vehicles, RVs, and watercraft.

3. While using TOD and POD beneficiary designations avoids the need to have an executor or personal representative appointed, this means that there is no one with the legal authority to file final income tax returns for the decedent. A trustee of a revocable trust has this authority, and so does the executor or personal representative named in a Will. The personal representative named in a Will has no legal authority unless there is a probate proceeding which admits the Will to probate.

In addition to the potential complications above, there are unique complications with respect to Transfer on Death (TOD) deeds for the purpose of transferring real estate without probate.

1. A TOD deed designating multiple children will effectively transfer title of the real estate directly to those children without probate proceedings. While the ease of transfer is convenient, none of the children have a greater say in the maintenance and disposition of the real estate. This can leave children in an untenable situation if they disagree about the disposition of the property, such as whether to sell the property or whether to make improvements to the property to prepare it for sale; not to mention the expenses in maintaining the property in the interim. The TOD transfer of title would even make it legal for one of the children to move into the residence and live there, while refusing to sell the residence.

2. A TOD beneficiary designation often does not cover contingencies. What happens if the named beneficiary predeceases the owner? We might expect that a parent will change their TOD beneficiary designations if a child predeceases them; however, what if the parent is mentally incapacitated, or simply does not take care of it? There is no simple procedure for determining who the successor beneficiaries are for purposes of providing clear title to the real estate. In the event a predeceased beneficiary’s minor children become the successor beneficiaries, real estate cannot be transferred to them without cumbersome court proceedings, such as a guardianship. Going forward, the court would be involved in all transactions involving the real estate, including sale. Furthermore, there is no ability to hold assets for the minor beneficiaries once they become the age of 18.

3. If a TOD beneficiary is in a nursing home and receiving Medical Assistance (Medicaid) benefits, the automatic transfer of real estate to them will affect their Medicaid eligibility and, in all likelihood, cause a loss of benefits. Their proceeds from the sale of the property will likely have to be used to pay nursing home expenses.

Consideration of whether or not to use direct beneficiary designations is crucial to your estate plan. While it may work well in some situations, it is important to consider both the advantages and disadvantages and work closely with your estate planning attorney to avoid common pitfalls. When in doubt, seek proper legal advice before completing direct beneficiary forms to make sure your designations are consistent with your overall estate planning goals.

Transferring the Residence to a Caregiver Child-Exception to Divestment

Transferring the Residence to a Caregiver Child-Exception to Divestment

I’m often asked whether transferring a parent’s residence to an adult child or children will “save the house from the nursing home.” Parents have heard that their friends or other relatives have made such a transfer in order to protect the residence, or to avoid having to sell it to pay for expensive nursing home care. While such a transfer may be appropriate in some cases, many families do not realize that if the parent applies for Medical Assistance benefits within five years of making such a transfer, they will actually be ineligible for benefits for a period of time due to making a disqualifying divestment.

A divestment is the disposing of assets for less than fair market value. If an applicant for Medical Assistance has divested assets, a disqualification period results based on the value of the assets transferred. The penalty period is calculated by dividing the total divested amount by the statewide average nursing home cost of care (currently $252.95 per day) in effect at the time of the Medical Assistance application. This number is the number of days of disqualification.

There is an exception under the divestment rules, however, for transfers of a home to a caregiver child. This exception allows adult children to care for their parent at home as opposed to moving them into a nursing home or assisted living facility, while at the same time compensating the child for their caregiving in the form of a transfer of the parent’s home. The home would otherwise have to be sold and the proceeds used to pay for long-term care.

In order to qualify for the caregiver child exception, the caregiver child must live in the home with his or her parent for at least two years immediately preceding the parent’s admission to a nursing home or assisted living facility. The level of care that the child provides must be the type of care that would ordinarily have required living in assisted living or a nursing home, but for the care provided by the child. Such care may include monitoring medications, providing meals, providing assistance with activities of daily living, such as bathing, dressing, and using the bathroom, and ensuring the health and safety of the parent.

Documentation of the level of care must be provided in the form of a notarized statement indicating that the parent was able to remain in his or her home because of the care provided by the child. The statement must be either from the parent’s physician or from an individual (other than the caregiver child) who has personal knowledge of his or her living circumstances.

It is important to consult with an elder law attorney before making a transfer of the residence to discuss the tax and other ramifications, as well as to ensure that the requirements to meet the caregiver child exception are properly followed.

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